HSBC, Republic Expected to Discuss Early Findings of Scandal Probe

discuss today the preliminary findings of a law firm's investigation into Republic's role in a securities scandal, sources said.

HSBC shareholders in the United Kingdom say they have been told by the banking company that an ongoing investigation shows that Republic's dealings with a money manager accused of securities fraud were an isolated case. They also said the probe found that Republic's potential liability in the matter is not as great as once thought possible.

HSBC agreed in May to buy Republic for $10.3 billion. The transaction was originally expected to close by yearend, but shareholder votes have been delayed until the outcome of the investigation.

Republic asked its outside law firm, Sullivan & Cromwell, to examine its dealings with Martin A. Armstrong, the head of Princeton Economics International, a Princeton, N.J.-based money management firm. Last week the U.S. Attorney charged Mr. Armstrong with securities fraud. He is accused of covering up as much as $1 billion in losses through accounts controlled by Republic.

A spokeswoman for Republic declined to comment Thursday about whether the investigation would be concluded this week or if any meeting would take place. A spokeswoman for HSBC said the bank has not received a report on the matter and that no meeting was scheduled. But on Wednesday a Republic spokeswoman did say that Republic intended to present all shareholders with information about the banking company's role in the scandal at least 10 days before its shareholder meeting Oct. 12.

One reason Republic officials say they are confident the company's liability is limited is that Mr. Armstrong's funds were highly speculative and catered to wealthy investors. "These aren't widows and orphans we're talking about," a source close to the investigation said. -- David Weidner